Bakery chain Greggs announced a fresh batch of initiatives as it warned on profits and revealed how undercooked half-year returns failed to rise to the occasion.
The Newcastle pastymaker pledged to reshape its business, targeting a greater proportion of “food on the go” shoppers, after warning it stood to miss out on growth in a market already worth £6 billion.
Bosses said they were bringing staff in earlier to ensure sandwiches were available for customers increasingly snapping up lunches on their way to work, and would keep shops open later to capitalise on a growing “afternoon snacking” trend.
Greggs, which has close to 1,700 outlets across the UK, said its priority was to return to like-for-like growth following a six-month period in which the measure fell by 2.9%, dragging pre-tax profits down to £11.4 million.
The £4.6m drop marked a reduction of almost 30% on the same time last year, and new shop openings were unable to offset the impact on the bottom line.
The firm also warned that full-year profits would tumble around £3m below expectations following a hot summer which saw customers ditch hot savouries in favour of cold drinks, a tranche of new investment in strategy, and impairment of under-performing property assets.
Changes announced will result in exceptional costs of between £6m and £8m in the second half, though an additional £25m will be invested over the next five years generating anticipated business benefits of £38m in the same period.
Shares closed the day down nearly 9% or 39.3p at 402.3p after the profits warning, despite the holding of the interim dividend at 6p per share.
“Greggs is a strong brand that has the ability to grow shareholder value over the long term,” said chief executive Roger Whiteside, who took on the job in February.
“Our focus for the future will be on winning in the growing food on the go market.
“As a consequence we will spend the next two to three years reshaping the business as we build the platform for long-term sustainable profit growth for the benefit of shareholders, employees and the wider community.”
Greggs also plans to call a temporary halt to its ambitious expansion plans, and will instead focus on improving the quality of its existing estate by hastening the rate of relocations and accelerating a refit programme designed to develop a single-shop format.
Around 90 refurbishments have been completed during the period to the end of June, with up to another 150 planned by the year-end.
The company will also launch its own loyalty scheme and expand its growing service station offering through a franchising partnership with Moto.
The firm’s ‘bake at home’ range will not be expanded beyond its current Iceland tie-up, and the Greggs Moment coffee shop format will be reincorporated into revamped bakery stores despite initially encouraging sales as a stand-alone enterprise.
With capacity requirements frozen for the time being, plans for a new factory in the East Midlands have been shelved.
Analysts Darren Shirley and Clive Black at Shore Capital said it had downgraded its full-year expectations by more than previously anticipated, but hailed the new strategy including a retrenchment in the growth of the estate.
They welcomed the “greater focus” but warned that “any turnaround in momentum and margin” would take at least 18 months in their view.